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Minera Gold signs binding US$5.5M deals for Peru processing plant

Published: 20:00 03 Sep 2014 AEST

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Minera Gold (ASX:MIZ) has signed binding financing arrangements for US$5.5 million of funding to complete the proposed acquisition of the San Santiago gold-copper processing plant at Otapara, Peru.

The mill will result in significant cost saving due to not having to pay US$1 million per annum in lease fees for its CIP gold circuit and additional earnings from toll treatment.

The package consists of US$4.4 million funding from existing precious metals streaming partner SilverStream SZEC as well as a US$1.1 million mezzanine debt facility with an existing shareholder of Minera Gold.

Minera and its advisers are also continuing to assess proposals from both commodity traders and term debt for the provision of a long-term working capital facility.

However, while it has reviewed a number of proposals for between US$3 – US$5 million in debt and convertible facilities, it believes that better terms will be presented now that funding of the acquisition is complete.

Funding Details

The funding from SilverStream, consists of:

-    US$3 million through the previously announced silver purchase agreement; and
-    US$1.4 million through wavering the terms of the original gold purchase agreement and bringing forward the first milestone tranche of that agreement.

Minera has also entered into a two year mezzanine agreement with an existing shareholder that consists of US$600,000 in straight debt and also a convertible component for US$500,000. Interest on this facility is 18% per annum.

Subject to the vendor satisfying the final conditions precedent, settlement of the Peru acquisition is now confirmed for on or about 12 September 2014.

San Santiago Plant

The San Santiago plant being acquired is a three circuit processing complex and comprises the larger milling complex where the company has commenced commercial processing through the CIP circuit in the first half of August 2014.

Gold shipments commenced soon after and ore from the Company’s 100% owned Torrecillas mine, also in Peru, provided the majority of the feed to the processing plant during August.

The acquisition allows Minera to operate the gold circuit at 125 tonnes per day with an average grade of 22 grams per tonne and the copper circuit at 225tpd at an average grade of 4.5%.

Equipment availability within the circuit was far better than expected with the crushing and grinding circuits operating at or above name plate capacity when operational.

However, CIP operations did experience unforseen shutdowns in August due to external power supply issues to site by the local Peruvian power company and the recent 6.9 magnitude Peruvian earthquake where the epicentre was less than 100 kilometres away from the mill.

These power supply issues have been rectified and the company has ordered a larger diesel generator to provide a suitable back up power supply.

The metallurgical balance testing and reconciliation for the month is still ongoing and being verified by Minera’s technical consultants.

In addition, consultants will undertake a full assessment of the plant’s performance following the first month of operations post commissioning.

Toll Treatment

Highlighting the plant’s ability to generate additional earnings for Minera, three contracts were signed at the end of August with local mine operators for the toll treating of third party ore. 

These contracts run for 12 months and delivery of ore under these contracts has commenced.

The commitments received equate to approximately 22% of plant capacity and are for:

-    300 tonnes per month at a grade of between 45-90g/t gold;
-    200tpm at a grade of between 30-45g/t gold and
-    150-200tpm at a grade of 17-25g/t gold from oxide material.

Additional sources of quality gold ore continue to be assessed to ensure full compliance with local laws in relation to the processing of third party material.

Analysis

With US$5.5 million financing secured to complete acquisition of the San Santiago processing plant, Minera Gold is poised to reap the benefits for lower operating costs from the removal of lease fees as well as additional earnings from third party toll treatment.

Indeed, this should reduce all-in cash costs for its Torrecillas gold project to about US$780 per ounce by the end of the year from the current US$880 per ounce.

This comes in part from not having to pay US$1 million per annum in lease fees for the gold circuit.

San Santiago had also generated an unaudited EBITDA of US$1.0 million for the six months to 30 June 2014 from toll treatment charges alone.

Proactive Investors' earlier valuation for Minera in the range of $0.007 - $0.012 within 6-9 months may prove conservative.

 

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